Sapphire Foods India Ltd (NSE: SAPPHIRE) Q2 2025 Earnings Call dated Oct. 28, 2024
Corporate Participants:
Sanjay Purohit — Group Chief Executive Officer
Vijay Jain — Chief Financial Officer
Analysts:
Unidentified Participant
Vishal Gutka — Analyst
Nihal Mahesh Jham — Analyst
Tejas Shah — Analyst
Jaykumar Doshi — Analyst
Percy Panthaki — Analyst
Devanshu Bansal — Analyst
Gaurav Jogani — Analyst
Shirish Pardeshi — Analyst
Harish Advani — Analyst
Jignanshu Gor — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Sapphire Foods India Limited Q2 and H1 FY ’25 Earnings Conference Call hosted by Orient Capital. [Operator Instructions]
I now hand the conference over to Ms. Shivani Karwat [Phonetic] from Orient Capital. Thank you. And over to you, ma’am.
Unidentified Participant
Good evening, everyone. Welcome to the Q2 and H1 FY ’24 earnings con call for Sapphire Foods India Limited. From the management we have with us Mr. Sanjay Purohit, Group CEO and Whole-Time Director; Mr. Vijay Jain, CFO; and Mr. Kaushik Vankadkar, Head, Investor Relations. I hope everybody had a chance to go through the results and the investor presentation, which was uploaded on the exchange earlier today.
Before we proceed, a reminder that this call may contain some forward-looking statements, which do not guarantee future performances and involve unforeseen risks. A detailed disclaimer has also been published in the presentation.
I will now hand over the call to Mr. Sanjay. Over to you, sir.
Sanjay Purohit — Group Chief Executive Officer
Good afternoon, everybody. My name is Sanjay Purohit. Welcome to our quarter two and six-month FY ’25 consolidated financial highlights. As usual, between me and Vijay Jain, our CFO, we will share with you the results. These are already up on our website plus have been filed with the — with SEBI.
Our quarter two consolidated restaurant sales at INR694 crores grew by 8% year-on-year with EBITDA of INR115 crores at 16.6%. As you can see, growth conditions have been difficult. Our consolidated restaurant EBITDA declined 8% year-on-year and margin — restaurant margin was 13.7%, down 240 basis points. Our consolidated EBITDA I spoke about was INR115 crores, 16.6%. This declined year-on-year by 1%. Our consolidated adjusted EBITDA was INR59 crores, which declined year-on-year by 13% or 210 basis points. Our consolidated PBT before exceptional items was INR5.3 million [Phonetic] or 0.8%, whereas the adjusted PBT before exceptional item was about INR14 crores or 2.1%.
The exceptional items impairment came from our Maldives business, where we’ve got two KFC and two Pizza Hut stores each and the Maldives business contributes 0.4% of our overall revenue. This business has struggled over the last one year after the Middle East geopolitical situation when we saw sales down by nearly 60% year-on-year, and over the last one year, this has not improved. This sharp reduction in the sales of those four stores resulted in the business incurring losses, and hence as a prudent approach, we have taken a non-cash impairment of INR11.4 crores in the quarter as an exceptional item in our consolidated financials.
Now let me go to slide number 19 and speak about KFC. Typically, quarter two, as all of you would know, is our — is the softest quarter for KFC. And this is because we’ve got a number of vegetarian-only festival days. Interestingly, this year, we have seen a greater impact, greater negative impact during the — during such festival vegetarian days. Because SSSG was negative 8%, because of the resultant deleverage, our restaurant EBITDA came at 16.5% or down 270 basis points year-on-year. Part of this is reflected in the muted demand conditions. And as I’ve said in the past, our response for SSSG revival revolves around focusing on increasing occasions of consumption through product innovations like Chicken Rolls variants, Zinger Burger variants, Snackers. We focus on day part extensions like lunch, late night and Wednesdays. And we drive value through — or we drive value at three different price points of snacking, individual meals, and group meal occasions.
From a store opening perspective, we opened 19 stores in the quarter. And as we’ve been indicating, by the end of this calendar year, we should roughly be doubling our store count that existed in December ’21 as we had indicated. What we are seeing of KFC in quarter three is a continuation of what we have seen perhaps over the full calendar year where SSSD is roughly in the region of minus 5%, minus 6%. And as we come out on Navaratra and post-Dussehra, this is the kind of inherent business demand that we are seeing.
I’ll now hand it over to Vijay to talk about the specific numbers.
Vijay Jain — Chief Financial Officer
I’m on slide number 23, which gives channel-wise sales contribution. Dine in takeaway mix was at 58% for the quarter and delivery at 42%. This largely remained in line with the previous quarter, Q1 FY ’25. The SSSG came at minus 8% with ADS at INR111,000. We added roughly 80 restaurants in last one year and the overall revenue growth came at 9%. Gross margin improved by 40 basis points year-on-year. And while gross margin improved by 40 basis points due to — overall restaurant EBITDA came at 16.5%. This was impacted on account of the operating deleverage caused by minus 8% SSSG.
Slide number 26 gives you four-year trend and five-quarter trend. The overall brand still remains quite strong. And with the measures Sanjay spoke about just a minute back and the vegetarian festival day is out of our way, we hope for a better H2 as we move forward.
Sanjay Purohit — Group Chief Executive Officer
With respect to Pizza Hut, we have seen a 17% sequential quarter-on-quarter upliftment in average daily sales in the April, May, June quarter versus the Jan, Feb, March quarter. So our ADS levels have reached INR48,000, and this has remained more or less stable in quarter two also where ADS levels have been in the region of INR47,000. Our restaurant sales increased by 3% with SSSG being minus 3%.
In line with our — the strategy that we called out of — we will in — we will continue to invest behind marketing and that marketing investment first went behind Melts between April and September. And now in October, we’ve launched the exciting Momo Mia range of appetizers and pizzas. We are quite confident that as we continue to invest behind marketing and our in-store execution improves today on an average, all our stores are above 4 rating on, Swiggy, Zomato as well as on Google. So clearly, the emphasis that we have put on improving operations has also held. So we are quite confident that in the medium-term, the brand will revive.
We continue to be cautious on store openings, but while we opened only one store in the quarter, we should open roughly 20 to 25 stores, new stores this year — sorry, we opened three stores in this quarter and we should open between 20 and 25 stores in the year.
Vijay, could you just take the numbers?
Vijay Jain — Chief Financial Officer
So on slide 33, sales — channel-wise sales contribution. Dine in plus takeaway came at 48% and delivery at 52%, again in line with quarter one of FY ’25. Overall, SSSG was minus 3% at INR47,000 ADS and the overall revenue [Technical Issues] by 3% with gross margins up by 40 basis points. The negative SSSG led to operating deleverage and combined that with the additional marketing investments impacted the EBITDA, which came at 4.1%.
Slide 36 gives you the four-year trend and five-quarter trend. It can be seen that last two quarters, the ADS has partially recovered and even Q4 last year, we actually incurred losses. So even from a profitability-wise, we are in the range of 4%, 5%. So if we continue to focus on the brand revival through the product innovation and the marketing investments, we believe the brand will emerge stronger in the medium-term.
Sanjay Purohit — Group Chief Executive Officer
Our Sri Lanka business continues to recover well with both sales and profit improvements. Restaurant sales grew by 10% in LKR terms, while SSSG here was 9% and transaction growth was also very healthy. In rupee terms, restaurant sales increased by 19%. Restaurant EBITDA margins were also the best in the last four, five quarters. But let Vijay take the specific numbers.
Vijay Jain — Chief Financial Officer
So slide number 41, channel-wise sales contribution. Dine in plus takeaway for Sri Lanka business came at 62% with delivery at 38%, exactly same as quarter one. The SSSG was 9% and backed by a positive SSTG. So it’s driven by transaction growth. From an ADS point of view, 335,000 ADS in LKR and 93,000 in INR. Overall revenue grew by 10% in LKR and 19% in INR. In terms of gross margins, while we dropped by 110 basis points in Sri Lanka, the restaurant EBITDA grew by 20 basis points to 15.5%.
Slide number 45 gives four-year trend and five-quarter trend. And the last two quarters — in fact last several — few quarters of positive SSSG backed by transaction growth bodes well as we move forward into H2.
Sanjay Purohit — Group Chief Executive Officer
So in conclusion, it’s been a difficult quarter and a difficult six months, but we continue to focus on what we can control on the basics of improving store operations. Our cost management has been really good. Gross margins, as you can see, we’ve been able to get some benefit right across. The nature of channels has changed a little bit more in favor of delivery. Now with most of the vegetarian months — vegetarian days over, we should get a better read by the end of, say, November on how the second half is progressing, but we are still confident that if we stick to the basics, we will get out of this in a much better position.
Now with this, I will hand it over to all of you all for question — for the question-and-answer session.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Vishal Gutka from HDFC Securities. Please go ahead.
Vishal Gutka
Yeah. Hi, Sanjay and team. Three questions from my side. First on KFC, we have gone for massive expansion in last three years. I think three years back, the store count was 200, now it is around 460. At the same time, the market might not have expanded at the same rate with regards to store expansion, what is it? [Phonetic]. I just wanted to check in the wake of current slowdown, where are we exactly expanding? Are we expanding into — more into existing cities or it’s completely emerging markets? And do you think there is a need to recalibrate expansion at least in existing cities because that will provide the buffer time so that store expansion catches up with the market growth rates? That’s the first question.
Second question on Pizza Hut. Domino’s has gone very, very aggressive on the NPD or innovation calendar, although we also made some launches, Melts and I think Momo Mia that is coming up. But I believe that we really need to push the pedal on the innovation front is concerned. What kind of, sir, ADS will be required to achieve low-teen margins in the context of increased competency intensity from various players because earlier ADS might not be relevant in the current context given the competitive intensity has gone up in a significant manner?
And last question on M&A front. Given that we’ll be generating decent amount of cash flow over a period of next two, three years, any thoughts on M&A and are we open to acquiring a minor stake in any cloud-based kitchen brands, whichever — who are compliant with the seven rules that we have on that front? And the last, I would like to wish the entire team, happy Diwali. Thank you.
Sanjay Purohit
Just can you — Vishal, can you elaborate on your question to which you said on Pizza Hut innovation and what was the question?
Vishal Gutka
Yeah. So Domino’s has gone very, very aggressive in terms of innovation. Four or five innovations they have launched in the period of six months kind of basket. We have done Melts and I think recently have come up with Momo Mia. So just wanted to understand, sir, can we go aggressive on innovation front as well, NPDs and innovation? And the question is that ADS, what ADS number will be able to achieve low-teen margins? Because earlier ADS numbers might not be relevant given that the competitive intensity has gone up significantly in this category.
Sanjay Purohit
Yeah. Very well.
Vijay Jain
So I’ll take the first question on Pizza Hut, KFC expansions. Over last three to four years, 85% of our restaurants have come in towns where the population is more than 1 million. I don’t see this trend changing as we move forward as well. And within that 85%, the 50% to 60% of restaurants would have come in the top metros. So that trend would remain even as we move forward. In terms of overall count, we called out that we would double the count by December ’24 and we should be close to 500. So that’s on track. Post that, we will again revisit what the guidance should be for the future expansion, but that’s how the mix will play out between the metros, the Tier 1s, and the towns where the population is more than 1 million.
On Pizza Hut, Sanjay, you would —
Sanjay Purohit
Yeah. And if I just add [Speech Overlap]
Vishal Gutka
Vijay, I just wanted to check. So on KFC, you are telling that existing only expanded, right, virgin market will expansion will be lower, right? That is the argument you’re trying to make.
Vijay Jain
18% to 20% of our store expansion comes in a probably virgin market.
Sanjay Purohit
Yeah. So I just want to add color here. Even in existing cities, the idea is to — so there might be parts of existing cities that are not served and we typically have a certain way to look at a distance from an existing KFC store that we could look at a new store. Now that varies according to the development of the brand in a particular city. So it will vary a little bit. So I think even if we are in — if you are expanding in Mumbai, we are expanding in Mumbai into [Speech Overlap]
Vijay Jain
Newer trade areas.
Sanjay Purohit
Newer trade areas that might have been less well-served than earlier on. So — yeah, so that’s one. On the innovation path [Phonetic], I think our belief on innovation is, first of all, innovation never ever will come at the cost of the core products. So the core product itself has to do really well. And typically, innovation appeals to a set of consumers who quite likely are your loyalist, and for them, you give a new reason to come back to the store. In some cases, like Melts, you are actually pulling the consumer into a new occasion of snacking also.
Now the big part of innovation is to be able to land it with every single consumer of yours. And typically, this takes time. So to do an innovation — to do four, five innovations, perhaps in a short period of time actually is quite counterproductive because your consumer is unlikely — all your consumers are unlikely to have sampled the innovation. With Melts, we have seen roughly anywhere between four to nine months is the ideal time for an innovation, after which you decide whether it should be part of your core menu or not. And I think our pace of innovation we are quite happy with as of this moment.
You spoke about what level of ADS will get us to low-teen level margins, I would say in the region of about 55% is where we would get to [Speech Overlap]
Vijay Jain
Double-digit.
Sanjay Purohit
Double-digit margins.
Vishal Gutka
Got it.
Sanjay Purohit
Finally, on your M&A and cash flow, while right now, our cash doesn’t — so what we generate through the year is marginally short of what we spend on capex, but there will be a period — there will be a time when very soon when this — our generation will be higher than our requirement. And hence at that point in time, we will look at — we will — we continue to look at M&A. At this moment, there are no great opportunities that we see.
Vijay Jain
Also, we have defined our criteria in terms of do’s and don’ts and that’s clearly part of our Annual Report. We have called out the seven mantras, which we believe are key to success at scale in a food business. So those are the filters which we keep using to evaluate the opportunity. There is no hurry, there is enough and more runway for both KFC as well as Pizza Hut. So if not in the short-term, in the medium-term, we would love to add a third brand using those criteria. And at that point in time, we’ll figure out what’s the right mode of structuring in terms of cash flow.
Vishal Gutka
Got it. Got it. Wishing you all the best for the coming quarters, and happy festive season.
Sanjay Purohit
Thank you very much. Happy Diwali to you.
Vishal Gutka
Thank you.
Operator
Thank you very much. [Operator Instructions] The next question is from the line of Nihal Mahesh from Ambit. Please go ahead.
Nihal Mahesh Jham
Hi, good evening, Sanjay and Vijay. Am I audible?
Vijay Jain
Yes, loud and clear.
Sanjay Purohit
[Speech Overlap], Nihal.
Nihal Mahesh Jham
Wonderful. [Technical Issues]
Vijay Jain
Nihal, we lost you. Nihal, your voice is cracking, in fact, breaking. We are losing you.
Nihal Mahesh Jham
Am I audible at this point?
Vijay Jain
A lot better. Go ahead.
Nihal Mahesh Jham
Yes, I’ll just make it quick. My question was, [Technical Issues] I do find the kind of slowdown that the entire QSR space is seeing. But just as a devil’s advocate, given KFC is an undisputed leader, has a value offering, is there a case where maybe the brand is not having enough appeal? I’m coming — maybe looking at this SSG number, which seems generally weak for a strong brand like what I would expect out of KFC. So that’s my first question.
Sanjay Purohit
So you’ll have to just repeat that question because we got the last part of the question. I mean, what do you want us to address on KFC? Just help us.
Nihal Mahesh Jham
So Sanjay, just trying to understand that is the weak SSG for a brand like KFC, which has such a high market share, more a case of a lower appeal with the brand rather than the overall slowdown. Just trying to understand that. I wanted your comments on that.
Sanjay Purohit
Yeah. So a strong brand and weak appeal are perhaps two opposite ends of the spectrum. I agree, it’s a very strong brand and largely competitive intensity will not — first of all, in friend chicken itself has reasonable competitive intensity. But overall, also, it plays in the general outside food occasions, in the general restaurant category. So competition comes from other sources also. And when you’ve got a weak demand environment, it also will impact even a brand as strong as KFC.
Having said that, I must say that, this year, we’ve been quite surprised by the intensity of the drop that we have seen on the brand during the vegetarian days, so I think it’s — even so in the northwest and even in the South where we have a festival called Purattasi in Tamil Nadu, there also we are seeing — we have seen drops. So I think now post Dussehra for the next two or — next three or four weeks is when we really should look at — we’ll get an assessment of how the rest of the year is panning out. Having said that, like I said, we continue to invest significantly behind the brand. And when I look at how we do in direct competitive environments, we continue to do really, really strong even with a direct competitor who has come up in the last, say, one year or so.
And then finally, I think we must call out that there is an impact of the Middle East tension that we are seeing. There’s some geopolitical impact that we perhaps can see on the business. Not now, it’s existed under the surface for perhaps the last two, three quarters.
Nihal Mahesh Jham
Got that. My second question was on the delivery, dine in mix. That is obviously something that for the last many quarters is seeing a trend towards delivery. Just wanted to understand anything to do with the scale-up of aggregators or certain consumption patterns you want to highlight? And Vijay, if you could just quantify the financial impact in terms of margins as the mix shifts more towards delivery.
Sanjay Purohit
Yeah. So one part of the delivery contribution increasing is the fact that we have opened late night as an occasion. This was very little, say, even a year ago and today it’s a reasonable part of our business. So — and that’s the only purely delivery. So that’s one. Second is we are also seeing pressure in malls. Typically, the footfall pressure in malls has translated into our dine in in malls suffering a. So these are the two large trends that we have seen that have favored delivery versus dine in.
Vijay Jain
Nihal, in terms of the impact on shifting the mix from dine in to delivery in a P&L, we typically see a 10- to 15- basis-point impact for every 1% shift. While this is not the entire impact from a delivery cost, we mitigate to some extent through the pricing. So our gross margins are better on delivery platform as well. So the net impact what we look at is 10 to 15 basis points.
Nihal Mahesh Jham
Got that. Thank you so much, and wish you all a happy Diwali. Thank you.
Sanjay Purohit
Thank you, Nihal. Happy Diwali.
Operator
Thank you very much. The next question is from the line of Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Tejas Shah
Hi. Thanks for the opportunity. First on KFC, could you break-down the nature of the slowdown specifically, is it driven by reduction in transaction volume or are we observing downtrading in the average ticket size also? And also, in the same answer, if you can comment on the market-share on both KFC and Pizza Hut, how we are observing that?
Sanjay Purohit
So the SSSG decline is — the SSTG and the SSSG decline is virtually the same. And this very — and perhaps the ticket size might have gone down 0.5% to 1%. That’s it.
Tejas Shah
Okay. So — go ahead, sir.
Sanjay Purohit
Yeah. So it is a transaction drop. It is not so much of a ticket size drop. From a market share perspective, I think once the rest of the companies present their numbers, then we’ll get an idea of how our market share is. But I think just indications that we are getting seem to suggest that we are still perhaps doing better than most of the industry, including on Pizza Hut.
Tejas Shah
Okay. And given the existing demand environment and competitive dynamics, how are you approaching store expansion guidance for KFC and Pizza Hut in the near-term? And what are the specific markers apart from private final consumption that you spoke about in earlier calls? What are the specific markets that you are kind of monitoring to kind of turn the momentum on expansion as well?
Sanjay Purohit
Yeah. So on KFC, I think we’ll let this quarter play out. And then by the next quarter’s investor call, we should be able to give a guidance on how ’25 will pan out. I would — I mean, if I have to hazard an answer today, I would say that we will be a little more cautious than we have been over the last three years in terms of our expansion on KFC. On Pizza Hut, we already called out that we were expanding anywhere between 50 and 60 stores. So this year, we believe that it will come down to 20, 25 because there are still opportunities that exist and our pipelines are built over several months and perhaps a year or two also. So, yeah.
Vijay Jain
And just to clarify, Sanjay meant cautious compared to what we have been doing over last three years on KFC where we doubled the count. So that’s a relative term he has [Phonetic] used cautious. Otherwise, we still believe that we will continue to expand pretty much on KFC and two or three quarters of negative SSSG should not be a cause of worry to expand a strong brand. So yes, you will still see pretty healthy additions on KFC as well.
Tejas Shah
Very clear. That’s all from my side. All the best for coming quarters, and happy Diwali to the team.
Sanjay Purohit
Thank you, Tejas. Happy Diwali to you.
Operator
Thank you very much. The next question is from the line of Jay Doshi from Kotak. Please go ahead.
Jaykumar Doshi
Yeah, hi, team. Thanks a lot for the opportunity. First of all, in the opening remarks, you mentioned you will double the store count by December ’24, which probably means that some 40 store additions. Did I hear it correctly or were you trying to say by FY ’25?
Vijay Jain
No, you heard it correctly, Jay. So close to 500 plus-minus here and there, close to 500 stores for KFC.
Jaykumar Doshi
For KFC? Understood. Second is, the last couple of quarters with INR114,000 and INR122,000 ADS for KFC, profitability was still holding very well at around 18.5% brand contribution margin. This time around, it dropped by 200-basis-point, and while I know ADS is slightly lower, but still this drop is — it appears that you’re handling — managing operating leverage much better over the past six months than in September quarter. So if you could explain in terms of what has changed and how should we think about this going forward?
And final one again on KFC. So all these are KFC-related questions. The final one is that, if you look at the last two years, the seasonality from September to December, ADS tends to be broadly similar levels as September and December, while we’ve always maintained that September is a seasonally weak quarter and December is a better quarter, but because maybe you have more store additions in December and hence ADS tends to be similar. So in this time around, if you are adding 40-odd stores, will ADS potentially decline in December versus what we are seeing in September quarter? That’s it from my side.
Vijay Jain
So the first part of the question on restaurant EBITDA, last year, we have also had the benefit of gross margins going our way. So that helped us a lot in managing the overall restaurant EBITDA margin. When you’re trying to compare this year’s ADS levels and you compare with previous year, what you’re missing is the inflation impact in terms of the cost, wages, the energy cost and all those things. So I think the ADS is still marginally lower. The overall cost increase is also an impact which needs to be considered when you move beyond a year. So that’s the first part.
Second, the gross margins have remained range-bound for us. Last year, if you see, the gross margins actually we had a benefit vis-a-vis a year ago in terms of gross margins. And having said that, at minus 8% and at INR111,000 ADS, we believe 16.5% restaurant EBITDA, considering these levels of sales, it’s pretty healthy EBITDA. If you wouldn’t have managed cost better, this could have gone down much further. Hence, it has to be looked into the relation of this INR111,000 ADS and minus 8%.
The second part of your query, which was on Q2 versus Q3 ADS levels, again, year-on-year, they may not be exactly comparable. Last year, September probably was one of the best months in the year because it came after two months of Adhik-mas and then the Shradh moved into October and the 29th September is when I remember the Shradh started. So it moved entirely into October. So the previous year’s number may not be entirely comparable. And a year-ago that we were coming out of COVID.
And so to be fair, if I look at six, seven years history, yes, we do experience quarter three to be better than quarter two and we don’t see any reason why this year the quarter three should not be better than quarter two. Now by how much it would be, let the maybe couple of months pass and there’ll be no better. But yes, quarter three should be better than quarter two.
Jaykumar Doshi
Understood. Vijay, just one thing. On brand EBITDA contribution margin, I was referring to March ’24, June ’24 and September ’24 where there is no difference in gross margin. However, EBITDA margin, brand contribution has dropped by about 200 basis points versus March ’24 and June ’24.
Vijay Jain
Yes. So that’s where the drop in ADS of 3%, sometimes a drop in ADS of when you look at 3%, you think INR3,000 [Phonetic] is a 3% ADS with the kind of operating leverage that 3% can impact you by almost 150 basis points in terms of operating leverage, isn’t it? Because the flow-through for a business like KFC is as high as 40%, right? And to add to that, the inflation on minimum wages, wage cost, energy cost that adds up.
Sanjay Purohit
Yeah. So from a Jan, March quarter to a July, August, September quarter, we’ve got — yeah, we’ve got all operating cost inflation coming in, Jay.
Jaykumar Doshi
Understood. Perfect. Thank you so much, and good luck for the next quarter.
Sanjay Purohit
Thank you, Jay. Happy Diwali to you.
Operator
Thank you very much. Next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Percy Panthaki
Hi, good evening, team. My question is on KFC. So I understand that Q2 was marred by the vegetarian days and the decline being higher-than-usual. So what has been your experience in October? For October, are you in positive SSSG territory on a Y-o-Y basis?
Sanjay Purohit
Yeah. So even October, Navaratra happened and it — we also comp Navaratra last year also. Post — I mean, the way that we look at it is that if you see the calendar year and if we see the financial year till date, so whether it is Jan to September or April to September, we are in the region of minus 5%, 6% negative SSSG. And this is what we think the quarter also will come out at.
Percy Panthaki
Okay, understood.
Vijay Jain
The additional impact which we had on the — because of the vegetarian days, the festival days, we don’t anticipate that in quarter three. So hence, we believe this may be the range we are looking at. But again, too early, we are just three weeks into October.
Sanjay Purohit
Yeah. And we are assuming that there is no change in the macroenvironment. That’s an important assumption.
Percy Panthaki
But like are you seeing any kind of green shoots? I mean, post — I know it’s been very few days, but post Navaratra, etc., with the vegetarian days out of the picture in the last couple of weeks or so, are you seeing any green shoots of improvement in the underlying demand?
Vijay Jain
Currently, what we — we are not seeing as high as minus 8% that the trend which existed prior to quarter two is what the trend is it has come back to.
Percy Panthaki
Understood.
Sanjay Purohit
And actually, only last week, Percy, was a clean week. So the week that ended yesterday was the first sort of clean week without — of some Monday to Sunday week that went without any sort of vegetarian disruptions.
Percy Panthaki
Right, right. Sir, just wanted to understand what’s happening on a demand front. I mean if we look at — and you are not alone, right, all the listed QSR players are seeing weak demand. But if we look at results of, let’s say, Zomato, there the growth is very high, overall like 20% plus kind of growth. Even if I take — remove the restaurant additions that they are doing on their platform and look at the sales per restaurant, that is also growing for them. So is it that this is like a competition not amongst the QSR players, but amongst the larger industry itself where smaller restaurants, etc., which were not really reaching the consumer earlier are now being able to reach the consumer much more easily through these aggregator apps. So is that what is happening do you think? I mean, just trying to hypothesize here because, again, as I said, this is overall QSR industry issue of weak demand, it’s nothing to do with you particularly. But I’m just asking you as well as other companies as well.
Sanjay Purohit
Yeah. So the weak consumer demand environment does not limit itself to QSR industries, but I feel looking at other FMCG companies also, their results, it extends to virtually every other consumer product category. My own take on this is, while I don’t think there’s a big reduction — so GDP growth is still reasonable. However, in most competitive categories over the last two, three years, we have seen significantly heightened competitive intensity, certainly, in QSR. Today, if I look at high street, if I look at malls and if I look at our online or digital stores, in high street, if you have, say, seven, eight competitors in a food gully, in a mall you’ll have competition from perhaps 20, 25 restaurants, and in the digital space, you’ll have competition with 100 banks.
So I think competitive intensity has gone up. And this competitive intensity is significantly higher than any rise in a private consumption expenditure. So this is a perhaps short-, medium-term impact that we are seeing. Having said that also at times perhaps we’ve expanded also and made the brand available significantly higher than earlier. So that’s perhaps one also reason. So I think all of this we’ve got to put together when we look at the next coming year or so firstly.
Percy Panthaki
Got it, got it. And my last question on Pizza Hut. So just like in KFC, I asked, are we seeing any kind of positive signs in October for Pizza Hut and this INR55,000 ADS that you said would be required for double-digit margin. I mean, is there [Speech Overlap]
Operator
Sorry to interrupt, sir, but can you please return to the question queue for a follow-up question?
Percy Panthaki
Okay.
Sanjay Purohit
Yeah. Never mind. We’ll just take this quickly. Yeah.
Operator
Okay, sir.
Sanjay Purohit
Yeah. So on Pizza Hut also, it is similar. I think we are holding after we saw the bump-up in quarter one, we are holding in quarter two and currently, Percy. So I think there also muted demand conditions are not helping. Having said that, at least we are stable and that itself is green shoots.
Percy Panthaki
Got it. Got it, sir. Thank you very much.
Sanjay Purohit
Appreciate the question, Percy. Thank you. Happy Diwali.
Percy Panthaki
Happy Diwali.
Operator
Thank you very much. [Operator Instructions] Thank you. The next question is from the line of Devanshu Bansal from Emkay Global Finance Services. Please go ahead.
Devanshu Bansal
Hi, good evening. Thanks for taking my question. Sir, particularly delivery, we are still doing okay, but challenges are more in dine in channel, even in absolute terms when we see KFC is largely flat in Q2. So do you see this as a structural change in the industry? And is there a need to sort of change our store format strategy as well?
Sanjay Purohit
Yeah. So undoubtedly, over the last three years, there has been some amount of channel shift from dine in to home service. When we look at other markets internationally, we see that there is a certain limit to how much this channel shift will occur. Having said that, we’ve always believed that an omnichannel store is the — is best suited to deliver the financial results that we want. A large portion of the capital to put up a store goes in the kitchen and only a smaller fraction is spent on the front of house, and hence, the — it is always better to have dine in takeaway and delivery, all three channels open, so let the consumer choose what she wants, how she wants us to serve her.
So I mean, it continues to be omnichannel rather than only delivery. In only delivery, I just want to call-out that unless you have — unless a brand has the capability of delivering 100% through their own system, having 100% — otherwise, having a large portion of sales go through the aggregators does not make too much of financial sense for a brand.
Devanshu Bansal
So just two quick follow-ups here. So you mentioned that global studies. So what is the extent of shift that typically is happening across the globe between off-premise and on-premise, if you just highlight?
Sanjay Purohit
I won’t have very specific numbers, but if I just look at businesses in the U.S., etc., where the cost of product on delivery is substantially higher than what is on dine in because of the delivery charges. So there, consumers seem to be coming back strongly to both dine in and takeaway.
Devanshu Bansal
Understood. Understood. And [Speech Overlap]
Sanjay Purohit
So there’s a lot of [Phonetic] convenience, I think that’s the point that I’m making.
Devanshu Bansal
Understood, sir. Understood. And between front and kitchen, what is the capex segregation for you?
Vijay Jain
Theoretically, [Phonetic] 70% of the capex goes into back of house and the balance 30% is front of house.
Devanshu Bansal
Understood. And last question from my end. You mentioned that our transaction size has broadly remained flattish versus last year. The competition at least has been very aggressive and focusing on transaction growth. So what’s your view here? Because our ADS has remained flat. Are we losing transaction share to the competition?
Sanjay Purohit
So I just want to highlight here that when SSSG has been minus 8%, a transaction decline also has been in the same region. When KFC overall system growth has been 8%, our overall transactions have also increased in the same proportion. So there has been very little ticket size improvement or otherwise that we have seen. So KFC as a brand has still grown transactions. The same-store transaction growth might be in the same realm of SSSG.
Devanshu Bansal
Understood. So you’re saying that with your store expansion, that is leading to a decline in transactions at your existing store side?
Sanjay Purohit
No, I never mentioned that. I just said that there is an SSSG decline. However, at a brand level, the transactions are still growing. I think that’s the only statement that I was making.
Vijay Jain
And the other part which you were referring whether we are de-growing because the — there are other players who are gaining, we don’t see that other players’ SSSG any better than probably ours. So I don’t think so that stands true, that hypothesis is true.
Devanshu Bansal
No, I was talking more from a pizza — leading pizza players, sir, not from the burger player, but they are sort of sacrificing the bill size on the table and they are seeing pretty good transaction growth. So my question was [Speech Overlap]
Operator
I’m sorry to interrupt, sir. But can you please rejoin the queue for a follow-up question?
Devanshu Bansal
Sure. Sure, no issues.
Operator
Thank you. The next question is from the line of Gaurav Jogani from JM Financial. Please go ahead.
Gaurav Jogani
Thank you for taking my question. I just have one question. In terms of Pizza Hut, sir, given that the margins are in now mid-single-digits and we would require an ADS of at least INR55,000-odd to reach to that double-digit. So how does this impact our unit economics at the store level? And so — and also, given that you will also have inflation going in, in the future years in terms of the other expenses. So would that also push the ADS requirement higher to get to this double-digit and then justifying the store unit economics?
Vijay Jain
So Gaurav, the first part is how does it impact, I was not clear because what we called out is that INR55,000 ADS or near or thereabout should be good enough for us to move towards double-digit. So what exactly you mean how does it impact?
Gaurav Jogani
No, no, my question was, because it’s a INR50,000 ADS right now, that would lead to a double-digit kind of an ADS. But going ahead, there would be also some inflation in terms of rentals and other expenses. So would that also mean that you would require a higher ADS then to get to the double-digit? And then on the unit economics part, given that because we are not doing that double-digit kind of in margins right now, so how does that impact the overall unit economics front in terms of the ROE/ROC profile for the stores?
Vijay Jain
So the first part of the question, if there is an inflation and which does not actually lead to a parallel ADS growth and only in a cost could — certainly will require a higher ADS, but then it’s a very hypothetical question. Typically, we have been able to manage inflation quite well, even the cost inflation quite well. When if you look at the last three years of Pizza Hut, even right now at a 4% EBITDA margin — restaurant EBITDA margins, if you actually do the math, the drop in the revenue has been quite significant. We were doing at one point in time INR60,000 ADS levels. And despite dropping to INR47,000, the impact on EBITDA has not been quite there. So we have been able to manage the cost inflation quite well. So it will all depend in what form and shape the inflation hits us as we move forward. But yeah, just mathematically, if there is an inflation on cost, you will certainly require a higher ADS. So that was the first part of the question.
The second is how does the ROI and all those gets impacted? Again, we are looking at the brand in a very different manner. The Pizza Hut brand for us is a second pillar of growth, which we need to work upon. Right now, the brand is at a stage where we need to build the interest in the brand from the consumer point of view. We don’t want to be in a situation that after a few years, we are only left with one leg of growth in terms of KFC. And hence, right now, the — it’s a phase where we need to invest behind the brand. If you do the math at this stage, of course, the ROI and the ROCEs will not work-out. But this was not the question, let’s say, two years ago when we were delivering INR60,000 ADS when the ROI was pretty decent. So I think first stage first, let’s move towards that INR50,000-plus mark, start — let’s moving slowly towards that double-digit mark and then we can discuss that ROI and ROCE conversation.
Gaurav Jogani
That’s all from me. Thank you.
Vijay Jain
Thank you.
Operator
Thank you very much. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Shirish Pardeshi
Good evening, Sanjay and Vijay. Thanks for the opportunity.
Sanjay Purohit
Good evening, Shirish.
Shirish Pardeshi
Yeah. Just one quick question. Out of 467 — 461 stores in KFC, Sanjay, you mentioned that we have stores in mall. So what percentage of stores and what percentage of revenue from these mall stores we get?
Vijay Jain
While I may not have exact number right now, but I — the revenue from mall would be anywhere between 40%, 45% revenue from mall. And of course, this — in terms of the count, this probably will be slightly lower, so it would be anywhere between 30% to 35%.
Shirish Pardeshi
Okay. So here, your hypothesis — or here your understanding is that the revenue in the mall stores has been punished very strong.
Vijay Jain
So what we’re saying is that dine in mall typically has a very high mix on dine in and very small amount of takeaway and very small amount of delivery as well. So it’s not that we don’t deliver out of a mall. But yeah, the mall dine in has taken a definite impact over the last six months.
Shirish Pardeshi
That’s what my understanding because malls dine in would be much stronger. So I don’t think the delivery would have affected. So you mean to say that the dine in and ticket size is under stress?
Vijay Jain
Not the ticket size, just the transactions. The — because of the footfall at the malls, the kind of probably footfall the malls are seeing, and again, it’s a — even what we’re seeing at the movie is the kind of movies which we are seeing, I don’t think the first six months have been great in terms of mall footfall because of the movies as well. So yes, the mall dine in has definitely been impacted.
Shirish Pardeshi
So on the flip side, if we had a non-vegetarian issue with the KFC portfolio, Pizza Hut should have surprised you positively in the mall stores and sales?
Vijay Jain
So the mall impact was nothing to do with because of non-vegetarian. The mall impact is just the mall footfall and the movies what we’re talking about. So it’s nothing to do with the cuisine, whether it’s vegetarian or non-vegetarian.
Shirish Pardeshi
Okay.
Vijay Jain
The vegetarian impact, which you were talking about on the KFC is just the overall impact which has been across malls and high street stores. So that impact is irrespective of the format.
Shirish Pardeshi
Okay. Got it. My second question is on slide 29, you have given Momo Mia pizza. But I guess why this is LTO and when this was launched and how long it will be there in the market?
Sanjay Purohit
Yeah. So this is part of our menu right now, Shirish. I think when we look at, we typically evaluate it after three to four months and then we see whether it needs to be a continuous part of our menu or not.
Vijay Jain
Or LTO.
Shirish Pardeshi
So it has gone before Navaratri, if I’m right.
Vijay Jain
So launched in October, first week of October.
Shirish Pardeshi
October?
Sanjay Purohit
Yeah, before, Navaratri, you are right.
Shirish Pardeshi
Okay. No, I saw that. So that’s why I was saying, but I was more curious why it is LTO.
Sanjay Purohit
No, I never said it’s an LTO.
Shirish Pardeshi
No, it’s written in the slide, limited time.
Sanjay Purohit
It’s part of our innovation pipeline. Typically, we evaluate it after three or four months, and after three or four months, we take the call whether we need to make it as a continuous part of our menu or perhaps withdraw it at that time.
Shirish Pardeshi
That’s — that I understood, Sanjay. What I was trying to understand to allude, you said that we are trying to build the occasions for the excitement for the consumer. So Melts has given some fillip [Phonetic]. But then is Momo Mia is also giving you the occasion and footfall increase.
Vijay Jain
Not clear.
Sanjay Purohit
Yeah. So you — did I hear you say that Melts has given you some fillip [Phonetic]? Momo Mia should give you a further fillip [Phonetic]. Is that what I understood?
Shirish Pardeshi
Yes.
Sanjay Purohit
Yeah. So it should give you — it should give us an additional fillip [Phonetic]. I think we’ll wait for the quarter to play out to understand how this works.
Shirish Pardeshi
Okay. All right. Happy Diwali to you, Sanjay and Vijay.
Sanjay Purohit
Happy Diwali, Shirish.
Shirish Pardeshi
Yeah.
Operator
Thank you very much. The next question is from the line of Harish Advani from Investec. Please go ahead.
Harish Advani
Hi, thank you for the opportunity. I just had one question when it comes to the KFC that we are trying to do in terms of increasing the daypart occasions through rolls and biryani bowls, etc. So I just wanted to understand, since you’ve been doing this from the last two to three quarters, how has this been trending? And if you can share any percentages of how this is contributing to our overall ADS? That was my last question.
Sanjay Purohit
So at this moment while we are pushing lunch, we are pushing rolls and so on, at an overall basis, the bold truth is that our SSSGs have continued to be negative. So one can say that it has had a limited impact on improving our sales trajectory.
Harish Advani
Okay. And is it possible to quantify in how much it’s contributing to ADS at the moment?
Sanjay Purohit
So contribution, typically, we don’t give out Harish. The — yeah, typically we don’t give out.
Harish Advani
Okay. Thank you.
Sanjay Purohit
Thank you, Harish. Happy Diwali to you.
Operator
Thank you very much. The next question is from the line of Jignanshu Gor from Bernstein. Please go ahead.
Jignanshu Gor
Hi, am I audible, Sanjay and Vijay?
Sanjay Purohit
Very much so.
Jignanshu Gor
Hi. First of all, a very happy festive season going into it, and hopefully the numbers recover. I just had one question in the interest of time. For the Sri Lanka business now that contributes roughly 15% of our EBITDA at overall level, what kind of growth prospects do you see there from a medium- to long-term perspective?
Sanjay Purohit
So we’ve just got out of perhaps about six to eight quarters of a really difficult time in the country and nothing that — I mean, it’s all macro conditions that sort of nosedive. We believe that Lanka would give us similar kind of growth opportunities as India, we should be able to open, say, anywhere between seven and 10 stores a year, and that’s what we would have thought earlier. At this moment, we are just a tad cautious still and wait for another quarter or so before we accelerate. Having said that, stores will continue to open, but [Speech Overlap]
Vijay Jain
It will be [Phonetic] in single digit.
Sanjay Purohit
It will be in single-digit.
Jignanshu Gor
Very helpful. Just one very small additional question on — this is on the capex related to India. So [Technical Issues] since we see the capex for store added has sort of dropped by 10%. Is this largely due to non-store capex being lower than past or is it also because we are making some changes in the configuration of the stores as we open them?
Vijay Jain
So again, because I think you’re working out capex or through a backward calculation by looking at the cash flow, right?
Jignanshu Gor
Right.
Vijay Jain
Yeah. So sometimes the cash flow vis-a-vis the actual capex, there could be always a mismatch. To be fair, I don’t think our capex have dropped. It’s in the — continues to be in the same region, which is roughly INR2 crore for KFC, INR1.35 crores to INR1.4 crores for Pizza Hut, that remains. Sometimes the cash flow depending upon when have you ordered, the cash flow can be very different. So there is no change in the capex. It’s neither increasing nor decreasing.
Jignanshu Gor
Okay, great. Thank you so much, and have a good festive season, guys.
Vijay Jain
Thank you so much.
Operator
Thank you very much. Due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments. Thank you. And over to you.
Sanjay Purohit
Yeah, thank you very much, all of you all for having joined this. I’m happy that we have done it just before Diwali and I wish you, your families a wonderful Diwali and a wonderful rest of the festive season till the end of the year. Thank you very much for supporting Sapphire Foods.
Operator
[Operator Closing Remarks]